The math that shows an LTV/CAC of 8.58x will take you public

06/28/2016By Sammy Abdullah, CFA

Yesterday we published a post showing that of the 47 publicly traded SaaS businesses we monitor, on median they generated $0.55 of revenue for each $1.00 spent on Sales & Marketing in 2015. Based on that data as well as a net retention analysis we did earlier this year which showed net retention was on median 103%, we can determine the LTV/CAC ratio for a typical SaaS business is 8.58x, which in our view is quite healthy and something you should strive for in you SaaS business. The math is below.

The table below shows revenue and sales & marketing expense for the 47 publicly traded SaaS businesses we monitor. By looking at the year over year revenue growth and comparing it to sales & marketing expense, we can determine how much new revenue is generated by spending $1.00 on sales & marketing. For instance, SalesForce grew revenue by $1.3bln, from $4bln in 2014 to $5.3bln in 2015. They spent $2.7mm on sales & marketing in 2015 so they generated $0.47 of new revenue for each $1.00 of sales & marketing spend ($1.3bln/$2.7bln). All 47 companies generated on median $0.55 of new revenue for each dollar of Sales & Marketing spend.

New Rev Per S&M

Revenue

Sales & Marketing

Name

Ticker

2015

2014

2013

2015

2014

2013

2015

2014

2U, Inc

TWOU

$150,194

$110,239

$83,127

$82,911

$65,218

$54,103

$0.48

$0.42

Athenahealth, Inc.

ATHN

$924,728

$752,599

$595,003

$229,901

$189,688

$149,488

$0.75

$0.83

Bazaarvoice, Inc.

BV

$191,181

$168,145

$146,812

$78,373

$86,482

$73,114

$0.29

$0.25

Benefitfocus, Inc.

BNFT

$185,143

$137,420

$104,752

$58,589

$48,467

$36,072

$0.81

$0.67

Box, Inc.

BOX

$216,440

$124,192

$58,797

$207,749

$171,188

$99,221

$0.44

$0.38

BroadSoft, Inc.

BSFT

$278,843

$216,857

$178,493

$83,806

$69,471

$56,822

$0.74

$0.55

Castlight Health, Inc.

CSLT

$75,315

$45,605

$12,973

$67,414

$62,065

$33,742

$0.44

$0.53

Cornerstone OnDemand, Inc.

CSOD

$339,651

$263,568

$185,129

$207,026

$162,552

$109,737

$0.37

$0.48

Cvent, Inc.

CVT

$187,716

$142,245

$111,136

$77,931

$61,764

$48,405

$0.58

$0.50

Demandware, Inc.

DWRE

$237,279

$160,553

$106,614

$100,865

$74,432

$52,384

$0.76

$0.72

Five9, Inc.

FIVN

$128,868

$103,102

$84,132

$42,042

$37,445

$28,065

$0.61

$0.51

Fleetmatics Group PLC

FLTX

$284,761

$231,581

$177,350

$96,908

$78,885

$56,589

$0.55

$0.69

Hortonworks, Inc.

HDP

$121,944

$46,048

$10,998

$133,052

$70,695

$17,187

$0.57

$0.50

HubSpot, Inc.

HUBS

$181,943

$115,876

$77,634

$112,629

$78,809

$53,158

$0.59

$0.49

IntraLinks Holdings, Inc.

IL

$276,153

$255,821

$234,496

$124,006

$115,867

$108,428

$0.16

$0.18

Jive Software, Inc.

JIVE

$195,793

$178,693

$145,763

$78,684

$90,141

$86,083

$0.22

$0.37

Lifelock

LOCK

$587,469

$476,016

$369,658

$273,389

$213,984

$162,363

$0.41

$0.50

LinkedIn Corp.

LNKD

$2,990,911

$2,218,767

$1,528,545

$1,048,129

$774,411

$522,100

$0.74

$0.89

LivePerson Inc.

LPSN

$239,012

$209,931

$177,805

$94,728

$83,253

$62,488

$0.31

$0.39

LogMeIN, Inc.

LOGM

$271,600

$221,956

$166,258

$138,946

$119,508

$88,794

$0.36

$0.47

Marin Software, Inc.

MRIN

$108,530

$99,354

$77,315

$45,132

$47,716

$42,799

$0.20

$0.46

Marketo, Inc.

MKTO

$209,869

$149,954

$95,918

$129,072

$98,843

$62,769

$0.46

$0.55

Medidata Solutions, Inc.

MDSO

$392,506

$335,071

$276,849

$103,153

$83,435

$66,337

$0.56

$0.70

MobileIron, Inc.

MOBL

$149,298

$132,295

$105,574

$105,520

$99,870

$68,309

$0.16

$0.27

NetSuite Inc.

N

$741,149

$556,284

$414,508

$388,741

$290,961

$210,079

$0.48

$0.49

New Relic, Inc.

NEWR

$88,589

$52,394

$24,586

$89,162

$58,156

$28,365

$0.41

$0.48

Proofpoint, Inc.

PFPT

$265,397

$195,607

$137,931

$156,156

$102,455

$71,781

$0.45

$0.56

Qualys, Inc.

QLYS

$164,284

$133,579

$107,962

$49,569

$48,049

$42,523

$0.62

$0.53

RealPage, Inc.

RP

$468,520

$404,551

$377,022

$123,108

$111,563

$95,894

$0.52

$0.25

RingCentral, Inc.

RNG

$296,228

$219,887

$160,505

$139,851

$104,827

$72,336

$0.55

$0.57

salesforce.com, Inc.

CRM

$5,373,586

$4,071,003

$3,050,195

$2,757,096

$2,168,132

$1,614,026

$0.47

$0.47

ServiceNow, Inc.

NOW

$1,005,480

$682,563

$424,650

$498,439

$341,119

$195,190

$0.65

$0.76

Splunk, Inc.

SPLK

$450,875

$302,623

$198,944

$344,471

$215,335

$125,098

$0.43

$0.48

SPS Commerce, Inc.

SPSC

$158,518

$127,947

$104,391

$55,374

$46,990

$39,621

$0.55

$0.50

Textura

TXTR

$86,729

$62,968

$47,537

$21,013

$20,518

$16,971

$1.13

$0.75

The Ultimate Software Group, Inc.

ULTI

$618,081

$505,936

$410,397

$169,664

$117,033

$93,879

$0.66

$0.82

Veeva Systems Inc.

VEEV

$313,222

$210,151

$129,548

$56,203

$41,507

$19,490

$1.83

$1.94

Wix.com Ltd.

WIX

$203,518

$141,841

$80,473

$120,010

$97,742

$53,776

$0.51

$0.63

WorkDay, Inc.

WDAY

$787,860

$468,938

$273,657

$315,840

$197,373

$123,440

$1.01

$0.99

Zendesk, Inc.

ZEN

$208,768

$127,049

$72,045

$114,052

$77,875

$37,622

$0.72

$0.71

Secureworks

SCWX

$262,130

$205,830

---

$146,324

$133,878

---

$0.38

---

Appfolio, Inc.

APPF

$74,977

$47,671

$26,542

$26,076

$16,876

$10,337

$1.05

$1.25

Atlassian Corporation

TEAM

$319,521

$215,109

$148,512

$67,989

$34,968

$18,795

$1.54

$1.90

Instructure

INST

$73,193

$44,352

$26,055

$53,459

$35,390

$20,702

$0.54

$0.52

Mindbody, Inc

MB

$101,369

$70,010

$48,687

$46,345

$30,922

$20,957

$0.68

$0.69

Shopify

SHOP

$205,233

$105,018

$50,252

$70,374

$45,929

$23,351

$1.42

$1.19

Xactly

XTLY

$61,111

$47,220

$36,325

$28,877

$20,532

$15,410

$0.48

$0.53

Mean

$452,202

$338,179

$249,171

$203,365

$156,220

$110,613

$0.61

$0.64

Median

$216,440

$168,145

$120,342

$103,153

$83,253

$56,706

$0.55

$0.53

Now that we have revenue generated per dollar of S&M spend ($0.55), we took a look at how long these SaaS businesses are keeping customers. To determine this, we looked at net revenue retention which is reported by 18 of the 47 companies we monitor. Net revenue retention is defined as revenue from existing customers at the beginning of the year + revenue expansion from those existing customers during the year – revenue lost from customers who left that year. The data shows net revenue retention of 103% on median, meaning these SaaS businesses receive more revenue from existing customers than revenue they lose from departing customers, which is a beautiful thing.

2015

2014

2013

NET CHURN

Ticker

Retention

Retention

Retention

Time Period

Retention Type

2U

TWOU

120%

112%

144%

Annual

Net

Benefitfocus, Inc.

BNFT

95%

95%

95%

Annual

Net

Box, Inc.

BOX

126%

136%

144%

Annual

Net

Castlight Health, Inc.

CSLT

116%

103%

---

Annual

Net

Cornerstone OnDemand, Inc.

CSOD

95%

95%

95%

Annual

Net

Cvent, Inc.

CVT

102%

102%

---

Annual

Net

Demandware, Inc.

DWRE

100%

100%

100%

Annual

Net

Five9, Inc.

FIVN

96%

96%

100%

Annual

Net

HubSpot, Inc.

HUBS

99%

93%

83%

Monthly

Net

Marketo, Inc.

MKTO

105%

109%

100%

Annual

Net

New Relic, Inc.

NEWR

130%

110%

---

Monthly

Net

Proofpoint, Inc.

PFPT

90%

90%

90%

Annual

Net

RingCentral, Inc.

RNG

99%

99%

---

Monthly

Net

SecureWorks

SCWX

105%

102%

99%

Annual

Net

Veeva Systems Inc.

VEEV

136%

166%

---

Annual

Net

Zendesk, Inc.

ZEN

123%

---

---

Annual

Net

Instructure

INST

100%

100%

100%

Annual

Net

Xactly

XTLY

104%

102%

---

Annual

Net

Median

103%

102%

100%

Average

108%

106%

105%

With these figures we can derive LTV. We take $0.55 in the first year and grow it by 3% per year into perpetuity. We then discount each of these annual cash flows by 10% to account for the time value of money. The result is an LTV of $8.58 based on a CAC of $1.00, for an LTV/CAC of 8.58x. The math can be seen at the following link in case this article wasn’t nerdy enough for you already.

As a SaaS business if you make sure you’re striving for net retention of at least 103% and new revenue per dollar of S&M spend of $0.55 per year, you’ll build great value and hopefully can go public for a nice exit, similar to these SaaS businesses who did just that.